This is episode #354, and my guest today is Scott Meyers, the nation’s leader in self storage investing. If you own single family or multi-family rentals, you’re going to get excited about learning more about rental investments where you don’t have to deal with tenants and toilets!
Today we talk about what makes Self-Storage facilities a better investment than most other options, how the ups and downs of the economy impact self storage, how to find new deals, how to get financing, and how to deal with operations and management.
Out of 354 shows, this is the very first time we’ve talked about Self-storage…and it’s pretty exciting information that I know you’re going to enjoy. Let’s get started.
Please help me welcome Scott Meyers to the show.
Highlights of this show
- Meet Scott Meyers, self-storage investor.
- Learn why investing in self storage facilities may just be the perfect real estate investment.
- Join the conversation of how ups and downs in the economy impact self storage.
- Learn how to find deals through buying existing properties, or developing new ones.
- Listen in as Scott shares how to get financing for your deals.
- Learn more about how to operate and manage your self storage investments.
Resources and Links from this show:
Listen to the Audio Version of this Episode
FlipNerd Show Transcript:
Mike: This is the flipnerd.com Expert Real Estate Investing show, the show for real estate investors, whether you’re a veteran or brand-new. I’m your host, Mike Hambright, and each week, I bring you a new expert guest that will share their knowledge and lessons with you. If you’re excited about real estate investing, believe in personal responsibility, and taking control of your life and financial destiny, you’re in the right place.
This is episode number 354, and my guest today is Scott Meyers, the nation’s leader in self-storage investing. Now, if you own single-family or multi-family rentals, you’re going to get excited about learning more about rental investments where you don’t have to deal with tenants and toilets and tenant laws, okay?
Today, we talk about what makes self-storage facilities a better investment than most other options, how the ups and downs of the economy impact the self-storage space as an investment, how to find new deals, how to get financing, how to deal with operations and management. This is an information-packed show all about investing in self-storage facilities.
Out of 354 shows, this is the very first time we’ve ever talked about this topic, and it’s pretty exciting information that I really think you’re going to enjoy. So let’s go ahead and get started. Please help me welcome Scott Meyers to the show. Scott, welcome to the show, my friend.
Scott: Hey, thanks, Mike, for having me. I appreciate it.
Mike: Yeah, good to see you again. So for those of you that are listening, Scott and I are in a mastermind group together, and that’s how we initially met. I knew of Scott before that, by the way. I don’t know if we talked about it, but I’ve crossed paths with you at some different expos and events over the years.
I’ve always been intrigued by self-storage units because those things are seemingly everywhere. But before we start talking about self-storage units, maybe tell us about your background and how you kind of fell into . . . I don’t know if you fell into it or if it was strategic or not, but kind of how you got into self storage.
Scott: Yeah, sure. Do you want the long version or the short version? Do we have 2 hours or 25 minutes?
Mike: Well, maybe we’ll have a Part 2 later for the longer version. [inaudible 00:02:11].
Scott: Yeah, yeah. I’ll keep our short version. So I started in real estate in 1993, and I think, like most people, started out buying single-family rental houses. And that was going to be the hedge for my retirement. And so I started buying lease-to-own properties and realized that the cash flow and the free time that all the gurus had talked about really wasn’t there. So I thought, “All right, I just need to work harder, and get smarter, and ramp things up and start buying apartments. And the more units I have, the economies of scale would catch up and have a property management company to kind of run all of this.”
And so we grew the business. We had 80 single-family houses, we had 400 apartments, and realized that all that it did was really kind of compound my problems. I didn’t have any more free time. I didn’t have any free cash. And this was about the time in ’99, with the recession prior to this last one, where the government was trying to spark the economy by implementing all these programs for first-time home buyers. And so anybody that could fog a mirror was able to go out and buy a house. And so all of our tenants left, and it just put us in this place where we were really struggling.
And so trying to turn that ship around, sell all our houses and apartments, I didn’t really want to get out of real estate, because I loved it, for all the reasons that everybody on this show loves it. Appreciation, depreciation, you put people in it, they pay down your basis. But if it weren’t for the tenants and the toilets and the trash, I could probably make some money in this game, right? So the only way to do that is either . . .
Mike: Those pesky tenants.
Scott: Yeah, those pesky tenants, customers. So I looked at the only way to do that is then parking lots or, perhaps, self storage. And so I started looking into . . . this is actually the second time I’d looked at this. And this was my wife’s idea to look into it several years earlier, and I didn’t because I was too proud, because I thought, “Oh, those storage sheds, those metal boxes? We are sophisticated. We have apartments and we have indoor plumbing.” And, you know, I couldn’t be bothered with going down the real estate ladder.
And lo and behold, when I started looking into self storage, the more I researched it, the more I found that, you know what? The best-kept secret in all of real estate and the most profitable sector was not in the gleaming Class A apartment complexes or office buildings. It was at the bottom end of the spectrum in these 10 by 10 metal boxes on concrete slabs. It was the most profitable, with the least amount of work. It’s the fastest-growing sector in all of commercial real estate. And it continues to do well to this day.
Mike: Yeah. Yeah, that’s awesome. And so we talked a little bit about kind of why self storage there. So talk about why self storage is moving so fast. Is it just Americans that doubled and tripled the sizes of our houses over the last several decades, and now we need to have even more space to store our stuff? Or what’s going on there?
Scott: Yeah, that’s one of the reasons. Back in the post-World War II housing, the 1945 to 1960, the houses that were built were 980 square feet with no garage. And today, the average square footage is almost double that. It’s just shy of 2,000 square feet, and we have 2.3-car garages. And back in the ’70s, which was the big boom in self storage, the most built unit in these facilities was a 5 by 10. Today, it’s a 10 by 15. And so, yeah, as a consumer in the United States, we just have this insatiable demand for stuff, our stuff, for storing it.
But there’s also a number of other factors that create a demand for storage as well, the baby boomers probably being the best example. They own one or more houses, and they’re snowbirds, and so they store their stuff up North when they move down South. When they move from down South, they put all their good stuff in storage so that the people they rent their homes to won’t ruin it. When they come back North, if they’ve retired well and planned well, and they’ve got boats and RVs, and the subdivisions, new homeowner’s associations, they won’t allow you to park those in those subdivisions. And so we, as an affluent community, we have to have a place for those.
And then as the boomers age, they downsize when the kids leave. They downsize again when they go into assisted living. And then downsize again when they pass on. But all their stuff goes in storage from the estate, and the probate, in some cases. Or the kids just don’t want that stuff, but they can’t get rid of it for sentimental reasons, so it all goes into storage again. So there’s a number of factors.
And storage is really . . . we say we’re in the trauma and transition business. And we are becoming a more transient society. And when people do pass on or when they move, that creates a need for storage. And so all those factors combined, plus the fact that it’s tied to the population growth. One in 10 households rents one or more storage units, and they have since the beginning. And so that’s just kind of a constant for growth.
Mike: Oh, wow. That’s interesting.
Scott: To answer your question, and one more point, from the reason why you’re seeing so much more right now is that we’ve had a lot of pent-up demand through the last recession where the banks weren’t financing any development of any kind. And then, all of the sudden, they opened their purse strings again, and self storage had the largest pent-up demand. And so that’s why we’re seeing a lot of development just to keep up with the demand. So yeah, a number of reasons why.
Mike: Yeah, so that’s awesome. And you made me think of something while you were just talking there, is there are obviously, I guess obviously now, different types of self storage, right? There’s the units where . . . of course, there’s different sizes. But I’m used to the shed style where you kind of put your stuff in, but there’s also kind of boats and RV storage. And sometimes, they’re one in the same, right? But maybe share your thoughts on . . . you probably know even more than I do that I just mentioned, like, different flavors of self storage that are kind of out there.
Scott: Yeah, the traditional, what most people are used to seeing, are the single-story metal buildings with the corrugated doors, multiple buildings on three or four-acre parcels that are littered all across the country. Well, then we started building buildings that were temperature-controlled. And really, the big guys, the REITs, the real estate investment trusts, they realized that if they heated and cooled the building, it would cost them this much more incrementally to do so and then pay for the utilities, but they could charge this much more incrementally in rent.
And so they kind of drove the demand for temperature control or climate control over the past several years. And as a result of that, then they were building the big multi-story buildings that were all climate-controlled and/or converting, reusing old industrial buildings and warehouses and anything they could get their hands on that already had zoning for self storage so that they could be quicker to market than going through the process of developing from the ground up.
And then, within those, we’ve got record storage. I mean, Iron Mountain is a form of self storage, if you will, but it’s of records. And so it’s temperature controlled. Those boxes are bar-coded and scanned, and they retrieved them and send them back and forth. There’s wine storage, which is temperature and humidity controlled.
We have [inaudible 00:09:00] storage, which is the same thing, that needs to be protected. And then also some high-end boats and RVs and collector cars, also in more secure locations, that aren’t just traditional, rollup self-storage units. Which are meant for higher-valued and higher-ticket items than just the traditional self storage like we started with, which is we have a limit in $5,000 in value, we tell anybody to store there. So then they would have to go to specialty stores for those others.
So there’s a number of different types of storage, but then also, the industry leads itself to adding on different profit centers like propane fillings tanks and U-Haul rental trucks as we’ve seen in business services and shipping services. And so there’s a number of little businesses within the business that we’ve seen added on to and incorporated into the self storage business as well. So it continues to evolve, and as unexciting and unappealing as it is for most people we find it pretty exciting.
Mike: Yeah. I mean, truthfully even in . . . I primarily invest in single-family homes, but I’ve told people for years that, “Hey, the most successful real estate investors have a business that’s completely boring.” It’s operationally . . . and you want to keep your drama level to a minimum in any business, ultimately. Right? Unless your business is entertainment on TV, right? But it’s interesting, because there are literally, within my office here, within two miles of here, I know of two self-storage facilities going up. One was this undeveloped little plot, just down the road here. And it looks like that’s going to be two stories and outside.
But there’s one that used to be, like, a Tom Thumb or a grocery store that then went away and just sat there for years. You drove past and in this little shopping center, the other stores are kind of coming and going. But that main anchor has been empty for years. And I don’t know exactly what they’re doing in there, but they’ve torn the face of it off, and they’re just converting that.
I thought it was pretty interesting, because . . . I think all of us could probably identify with the area of town where there used to be some big, like, anchor store, a Montgomery Wards or a Sears or Kmart or whatever, all these old stores that have just kind of sat there for years, sometimes, because what else is going to go in there, you know? But it’s interesting, it looks like self-storage units are finding a way to kind of revitalize those big stores that have been left behind.
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Scott: Yeah. That’s more on the development side. It truly is part of the development. And so if we have a look at those sites, usually, they do have to sit there for years, because the cost to build one from the ground up in that nice location, what we call an infill location, which is typically a retail location, many times, it doesn’t make sense. The amount of rent that is generated in self storage is as much as it is from retail or hotels or restaurants. So you’ve got to get the building for cheap. So yeah, typically, it’s something that has been sitting there for a while.
But if we can find those, and they have zoning, then that is one of the perfect reuses for it. And we can build in the parking lot, we can build out the inside. And it’s just, again, much quicker to market if we can find those.
And we’re pretty excited . . . buying existing is obviously the quickest and easiest way to get into the business and to finance it because you’ve got historical cash flows. Conversions being the second, and then building from the ground up being the third, because it is such a dramatically longer time period until it begins to cash flow. So the play for us right now is really to find those vacant warehouses or industrial buildings that we can convert. And yeah, we’re all about those.
And we’re seeing a dramatic change in the way we buy things. I mean, Amazon is taking over the world, and anything that we can buy online and have it dropshipped, we’re seeing a huge change in retail. And we’re going to see more and more in the future of these different types of retail outlets, including the grocery stores that are going to go dark and vacant, which are going to be perfect opportunities for us to take advantage of and repurpose.
Mike: Yeah, yeah. That’s awesome. Well, let’s talk a little bit about the market. So you’re the only, out of 354 shows . . . in fact, I don’t even know anybody else, personally, I’m pretty well-connected as a self storage investor that I can name, other than you. So this is the first time we’ve talked about this topic on the show.
We talk a lot about single-family investments. And it’s no surprise that the market is very competitive right now across the country in single-family homes, for sure. So there’s a lot more competition, and people don’t want to be investors. There are massive, kind of buying groups like Opendoor and stuff like that that are making it more competitive for individual investors, mom and pops, and things like that. And, of course, the market is doing better than it has been in a certain amount of years.
So how is the economic climate right now impacting the self storage space, from an investment standpoint? And what source of cycles have you seen in the self storage space?
Scott: Yeah, first of all, the beauty of storage is that it is basically inflation-proof and recession-proof. We continue to go up and to the right when times are good. People buy more stuff, and so they need to store more stuff. But then during a recession, it actually spikes, and we actually do better during a recession, because people are downsizing, businesses are downsizing. And, as I mentioned before, the development, the faucet shuts off by the banks because they’re not giving money out for development or speculative types of projects through a recession. So that creates a huge demand for storage in itself.
So as an investor, if you have cash or access to equity partners or investors, that is a time to build and/or to buy. But as far as the climate for somebody that is looking to get in, we cater to, and I started out as . . . and we have two companies. I have an education company and an investment company. And when I started looking into self storage, the best and the easiest way to get in was to look for existing and using the same techniques I use for buying my single-family houses and apartments.
And when I began to look around, there was a lot of opportunities around at the time, and talking with the same mom and pop owners that I was talking to when I was dealing with my small apartment complexes. But these days, it is a little bit tougher, because the market is doing well, as you’ve mentioned, but also self storage is doing extremely well. We’re over 100% occupancy in most of the major metro areas with waiting lists. Now, the industry as a whole is at 90% occupancy nationwide right now. So it is hot.
If you look at the performance of self storage over the past 36 years, there’s a lot of investors now, that for the folks that they’re looking to turn . . . we call it to “turn pro,” to graduate and. . .no offense, Mike, to you and your folks, but looking to get into commercial, this is the asset class. It beats the returns you can find in anything else, from apartments, to medical, to office, to industrial to retail, you name it. So there’s a lot of eyeballs on self storage right now. So that being said, it’s very competitive. And you can buy . . . you can get into self storage for the same amount as single-family houses in many areas. I mean, we can buy these things for $100,000.
So it’s becoming competitive, so therefore, we as a company, we’re looking more towards some development and turn-around opportunities, or the ones that the banks can’t easily finance, because those are slam-dunks right now. It’s a deal that’s cash-flowing and looks strong. You have no risk. The bank takes it on, well, we don’t want those anyway, because they’re not really priced right. But the more difficult deals that require cash or equity investors that come in, those are the ones that we’re searching for. They have the value add that we can turn around. So the market is competitive, much like single-family and other forms of real estate. It is especially hot in self storage because it is so profitable right now.
But we’re finding ways to uncover . . . we don’t look at the traditional sources and give up like most people do, the low-hanging fruit. We’ve got a number of ways that we find these deals, even before they come to market. And so we’re still bobbing along just like we always have, but also focusing a lot more as an organization on development and convergence at this point.
Mike: Yeah, yeah. That was my next question, is kind of how do you find and how do you . . . and I guess there’s a lot more development-type stuff going on in the past. So when you’re trying to develop a new property, talk a little bit about how you find locations. Is it just kind of population growth patterns? Or how do you determine where a good place to build is?
Scott: Yeah, the interesting thing about self storage, or one of the great things about self storage is that your market, for the most part in self storage, is really about three miles. That’s about all the further that somebody travels to get to their stuff. So they want their stuff near them. Rural areas, maybe five miles. And then in a downtown area, about a mile from all the apartments and the condos.
And so when we look into a market, well, we tell our students, “First of all, start in your back yard. Draw a two-hour drive radius around your house, and that’s where you begin to look in areas to focus on that are underserved. So start looking at existing facilities. Look at the websites that do have land that may be zoned for industrial or self storage to convert, or old buildings that are somewhere around 50,000, 60,000, 80,000 square foot that you can buy inexpensively that have been dark, that have been vacant for a long time that you can pick up inexpensively to be able to convert.
So then we back into the market, per se, and look around it within three miles to see who else is there, what other competition do we have, what is the population. And then we do have some formulas. And we do have some equilibriums that we look at in those markets in terms of the amount of square footage in self storage compared to the population so that we can fairly accurately predict what the demand is going to be and whether this project will succeed if we introduce more self storage into the marketplace given the population within three miles.
Mike: Yeah, yeah. And so talk a little bit about . . . know there’s different franchise concepts out there, right? Or some licensing concepts. And then probably most are independents, I would assume at this point. But maybe talk about what you teach, what you do, what maybe some of the pros and cons are of your different options from that regard.
Scott: Sure, yeah. So when I began looking into the business, there was one franchising company out there for self storage. And so I contacted them to see what they offer. And very similar to, like, a Subway, which is probably what most people recognize and know. They would give you the systems to run the business, a human resource manual, the operations manual, everything.
“Here’s the vendors that you buy your meat from, that you buy the lettuce from,” everything all set up in terms of a business, and then operations. “Here’s how you run it.” Then once you have purchased your facility, here’s the lease that you use, and here’s how you create this sale. This is the best ways to manage your facility, property management software, everything on a setup and then how to run it from there on out.
And they were charging traditional franchisees, which are $125,000 to $200,000, and then 6% to 8% royalties. But if you look at the benefit of a franchise in, like, a Subway, well, that comes in the repeat buying over and over again. Their regional marketing that drives traffic to any Subway. And I got to thinking, “Well, first of all, this is self storage. We set it up once, and if you create an operations manual once, and we market to try to beat everybody else at a three-mile radius, not national advertising, I don’t really see the benefit of that franchise model.
Mike: Yeah, that makes sense.
Scott: So essentially, what we did is we said, “Well, we’ll create this on our own.” Then I got trained in all the operations pieces. And then as we got the business started, just followed Michael Gerber from, “The E-Myth” and set up all the systems in our own business. Took what we had in the industry, built our own, and created our own franchise. And then after we had done that successfully several times, being in the real estate business and running a local real estate association, we started teaching people how to do this just in, like, Saturday workshops.
And then, lo and behold, one of the agents for the national speakers called me and said, “Hey, we understand you’re the guy in self storage, and we want to put you out on the circuit, if you will, and have you speak to these other locations. And if you could package up everything you’ve done in your little self storage franchise and how you educate people to do this, we think we can keep you busy.”
And so we did, and it worked. And then, thankfully, I think I have then two 60-hour a week business on the investing side and then the education side. So that’s the genesis of that. But now we’ve kind of scaled back the hours on both and blended the two where we teach people how to do it, but only the right people that we hope to partner with someday and that we truly go into partnerships on deals.
So now, to answer your last question, that’s how we find the properties, is that we have taught and trained a whole bunch of folks how to go out and find these opportunities. And then if they bring us into those partnerships, that’s where the lion’s share of our deals come from these days.
Mike: Yeah, yeah. And in terms of . . . I guess most people at this point, when you’re looking at populations, so do you do . . . for example, you have a lot of different facilities. Do you kind of . . . I don’t know what the proper terms are here, but kind of the general type that we talked about versus the specialty where you’re climate-controlled and doing . . . all these years, I’ve just stored my furs in my own closet. I didn’t know there was actually a [inaudible 00:23:24] fur storage.
My point is, are you more prone to just stick with general self storage versus getting into specialty stuff and the specialty people tend to be only specialty people? Or how does that kind of work out?
Scott: Yeah. We will look at the market for adding those. If you’re talking about traditional, single-story, metal buildings, that is really a function of the market and how far you get away from the downtown area as you get into those secondary markets, that seems to work for the construction and the cost and the amount you can charge for rent given the median income in that market.
It’s only when you begin to come a little bit closer that you look to . . . you’re going to pay more for land or buildings, and so you need to go up. And if you’re going to go up, then it needs to be climate control and temperature control. And do people really need that? Not in all cases. But again, we’ve kind of educated them that temperature control or climate control is what you need. So that is really becoming more of the norm.
Now, when it comes to the true specialty items like wine storage and record storage and even U-Haul and office centers, then we do another little minor market study to see, “Okay. Well, we know what the population looks like in the demographic that utilizes all those forms of storage. How much square foot do we dedicate to that within our unit facilities, and do we do that at all? Does it even make sense?
And so it’s kind of a secondary market study that we do to take a look at the demographics to see if it even makes sense to add those on. And sometimes, some of them are very easy to just add a small amount of square footage just to see if it works. And if not, no harm, no fault.
Mike: Yeah, yeah. Well, let’s talk about the financing of these units. So I’m sure it’s very different. Like you said, if you . . . you kind of said in passing a few minutes ago that if you’re buying an existing unit, well, it’s a business, right? So you can see historical cash flow and stuff like that. So probably a little bit easier to get financing, I’m assuming than development. But just talk about how hard it is to get financing, or what the differences are, maybe, from single family and other things based on what you’re buying or developing.
Scott: Yeah. Well, hard is definitely not the word. If you can’t get financing for a self storage project right now, you’re not trying very hard. This is the darling of all banks right now. It has a .24% loan default rate. I mean, these things, they cash-flow extremely well. They are recession-proof. They do better during a recession. Obviously, they do well during good times. And so if you look at, compare all the asset classes in real estate right now, self storage is at the absolute bottom. They just . . . it’s very rare that they fail.
My banker says to me, he said, “We love self storage just because we can wrap our heads around it. And we’ve looked at the failure rates on these things, and it’s almost minimal.” He said, “Basically you could be a brain-dead moron and run these things, and they won’t fail.” And he shook my hand, and I said, “I don’t know if I should take that as a compliment or your overwhelming faith in me.”
But at the end of the day, banks, credit unions, community banks, especially the folks that portfolio their loans that are staying local, they are clamoring for self storage deals right now, because they don’t package them up and sell them off. And so they are trying to get as many as possible so that when the next recession hits their balance sheet is going to look long when they do have to start bailing out and selling for pennies on the dollar all the houses and apartments and all the other forms of real estate that fail during a recession.
So it’s fairly easy to get financing on right now on a self storage project. Plus the fact that they are underwriting it based more on the project itself than the borrower. I mean, they’re still looking at the borrower, but at the end of the day, if a bank gets back a single-family house that was a rental or it’s vacant, it’s not generating income, then it’s just a detriment. They have to keep it up, and they have to blow it out and take a haircut.
Whereas if, for whatever reason, and for some reason, if they have to take back a self storage facility, they’ll take it back in a receivership, put a property management company in place, and they’ll generate cash flow until they sell it off. So from that standpoint, they’re more guarded and more likely to take on an investment like that than some of the other forms of real estate.
And I’m not trying to beat up or sound like I’m against single-family houses or the option to that . . .
Mike: No, not at all.
Scott: I’m just somebody who’s been from all of these asset classes, I went virtually bankrupt and came that close in apartments and houses. And so when I was looking into other asset classes in real estate, self storage was just the easiest to finance for all those reasons. And so my credit was bruised, and my cash flow was limited, and I found that this was the easiest path to get in, because banks and private equity investors and partners were seeing how well these properties were doing. And they literally were and still are throwing money at us to do these projects.
Mike: Yeah, that’s awesome. Yeah, so interestingly enough, last night I recorded some content for another upcoming master class about rental properties, and I talked a fair bit about vacancy and turnover. We talked about, like, kind of A, B, C, and even D-class properties. And the further down you go, the more likely somebody’s willing to kind of . . . do they turn over, obviously? Do they tear your house up more? Lots of things that could happen.
And so what I’ve been hearing as we’ve been talking is, “Hey, this is one place where your vacancies sounds like they’re a non-issue, for the most part. In terms of evictions and stuff, I was even just thinking about this, with evictions, like, you have . . . some markets around the country, it’s very difficult to evict people. In Texas it’s pretty easy. In some states, it’s pretty easy. You can get people out fairly quickly. And I’m guessing the rules are different for single-family in different states as well.
But talk a little bit about that, because I think it’s probably pretty cut and dry, right? If you don’t pay, you have a very short period of time, and then you’re locking their facility and maybe selling their assets to try to recoup your losses. Why don’t you talk about how that works?
Scott: Yeah, yeah. So you did pay attention to the master class we did.
Mike: Yes. Oh, of course. Well, listen, Scott created a master class for us. We have, in the FlipNerd lab, this is for elite members. If you’re a FlipNerd elite member, we have a master class that is called Self Storage Riches. I think we called it The New Gold Rush or something like that. But if you go to flipnerd.com/lab, there is a training course in there that, I don’t have it up in front of me, but it’s probably between 90 minutes and 2 hours of great content of Scott sharing how to get started in self storage real estate investing.
Well, yeah, so I’ve been thinking about how . . . because all of our problems with our . . . we have a rental portfolio. All of them are around turnover and evictions and all that stuff. So talk about that a little bit.
Scott: Well, that was really the turning point for me when we bought our first self storage facility. I mean, as I looked into the industry, I thought, “Man, this is fantastic,” because we have the protection of the lien laws versus eviction laws. So eviction laws protect, as we all know, the tenant. And lien laws in self storage, because it’s industrial and it’s called “self storage,” which means that we don’t create what’s called availment, which means that we don’t take possession of that unit. We don’t have a key or access, therefore, we place a lien on those units since we do not have access.
So rent is due on the first. We have a grace period until the fifth of the month. On the sixth, rent is officially late. We put an over-lock, which is another lock on their unit. There’s a place for two locks. Every door manufacturer has a place for two. It’s a disk lock. They can’t get it off with bolt cutters or any other way. And the only way to get that lock off is if they come up and pay us, and we go out there with a key, and they remove it.
And if they don’t pay us within 90 days, the lien law states that . . . we send them certified letters along the way letting them know that we’ve placed a lien on their unit. If they don’t pay us, we have the right to sell it off. And so we send them certified letters too, the second one letting them know when that sale is going to be. And then after 90 days, then yeah, we take our lock off. We do grind or cut their lock off, open it up, and we auction it off, and we recoup a little, most, or all, in some cases, even more money at an auction than what was owed on that unit in back rent and late fees.
Now, don’t get excited. If we make more on it, we have to send it back, certified check to the last owned name and address, or it goes to the state or whatever. But in those cases, we get 100% of our back-rent and our late fees. And then once that unit is freed up, not only did we get paid everything, but we take a blower, we blow it out, and then we move in the next person waiting in line in the office, because we’re [inaudible 00:32:03].
Mike: [inaudible 00:32:03]
Scott: Yeah. So I don’t know what your average turns are, Mike. But mine, at the end of my tenant/toilet days, was about $1,300 and about 40 to 45 days before I even got it rented again. So [inaudible 00:32:17].
Mike: [inaudible 00:32:18] I don’t know about timeline. I think our time is probably maybe under that. But I think our cost is definitely over that, unfortunately. Yeah. So up to 90 days. But I guess some of it just the mindset. Like, unfortunately, a lot of people, depending on what market you’re in, have been trained to know that “Even if I don’t pay the rent, I know I’m going to get evicted, but it’s going to take them a while to get me out of here.”
But I guess with self storage, like, people are . . . unless there’s just nothing in there, they don’t care about it anymore, then they have a much lower of a tendency, I would assume. The reason they rented a self storage is because they have something of value to store there, generally, right? And then they’re much less likely to not pay. They would rather just get it out of there and just maybe terminate their lease or whatever, right, then just try to get by with . . . because you can lock them out.
Scott: Yeah, because we can lock them out. And we advertise it, and we sell them off. And we [inaudible 00:33:20].
Mike: Do you have [inaudible 00:33:22] in that process about . . . I’m sorry. Go ahead.
Scott: So I guess . . .
Mike: You lock them out. Like, you can’t see what’s in there. So for all you know, they could have potentially removed everything and just stopped paying you, and you wouldn’t know that until the 90-day period is up, probably.
Scott: That is correct. Pretty rare, though. I mean, if they even have junk in there, they’re going to take their lock off, for the most part. But every once in a while, yeah, the stuff is off, and the lock is on it. Why they would take their junk and then put a lock back on it, I don’t know. But in some cases, that happens, but very rare. But then in that case, we’ve gotten all their information, driver’s license, usually credit card on file, which is how we do most of this stuff. And so the collection efforts are very, very simple and very easy for us to recoup that money.
Mike: Yeah, yeah. So let’s talk a little bit more about operations. We talked a little bit about some of the evictions and stuff. I have a few other friends that own some facilities, but I know then I’ve been around some where I know some of them are small enough to not have onsite management at all, right? And then some do have onsite management, probably a lot of yours and a lot of the bigger ones do. But just talk about kind of the operations and how some of that stuff is different from, let’s say, traditional property management.
Scott: Well, so first of all, the ratios are a little bit different. I don’t know how you run your organization, but when we had apartments, the ratio is one person working 10 hours a week for every . . . oh, my gosh. How many was that? Every 100 units, I think. I forget what the ratio was in apartments now. But in self storage, it’s basically 10 hours a week, roughly, for every 100 units that you have.
And so you need to get up to about 400 units before we would have a full-time property manager, whereas it would be considerably less than that in apartments and houses because of all the work that goes into that. So very, very less labor-intensive. And at the end of the day, we’re not chasing people for money, we’re not writing letters about noise. And we’re not showing apartments, if you will. It’s just very [inaudible 00:35:29]. They all look the same. It’s a box.
So the smaller units are a little bit easier to manage. However, if they’re really small, smaller facilities, I should say, with a smaller number of units, in that you may have to manage those on your own or get a retired person with a cellphone on their hip. But there’s just really not much to it. I mean, they answer the calls, they go and they open up a door and they show them the unit, and then they fill out the paperwork. People don’t shop looking for the best school system or a nicer, bigger house. I mean, it’s it. This is usually, mom is the one who’s given the task of renting a unit.
So as long as you make an appointment . . . first of all, you answer the phone. You make an appointment, show up. It’s clean, it looks secure. They have one available. She should not ever leave that property without renting a unit. So, I mean, that’s just the basics of it.
Now, as far as managing it on a regular basis and keeping me out of the business, yeah, we have property managers that are onsite. They are also employed by property management companies. And so we own facilities all over the country. And I know a lot about managing a self storage facility. Even though it’s not that difficult, there are some intricacies. But that is not where the money, for me, is made.
It’s directing the property management companies to move the needle and telling them what to do, although they know already what to do. But hiring the best in the markets in which we’re operating in. They know the markets the best. They know what to do. And so we turn them loose . . .
Mike: So you outsource all that, it sounds like.
Scott: All of it. Yep, 100%. There’s only one building in which I self-manage. And I have a person here full-time, and that’s the building I’m operating out of right now. And it’s an industrial building that’s 200,000 square feet that we also converted to self-storage. But we have offices in cold storage and warehouse. And so we need to have one person here onsite to manage this. And there’s no reason to hire a company to do that. But all the others that we have around the country are all done by third-party property management companies.
Mike: Yeah. Yeah, that’s great. And just to give some perspective, typically for a single-family units, which are, as we just talked about, more work, right? You’re showing the property, you’re dealing with maintenance issues, I call that stuff. A traditional property manager is probably getting somewhere in the 8% to 10% range of rent. So how does that compare for self storage? I’m sure it varies a little bit, but just kind of ballpark, how does that vary?
Scott: Yeah. We’re in the 5% to 6% range. The 5% is pretty much standard in the industry, and to get the rock stars, we’re paying about 6%.
Mike: Okay, okay. And then do those property managers also kind of handle marketing? Like, if you’re near a neighborhood . . . like, actually, sometimes we get postcards, or we get other flyers in the mail, or things like that. I mean, do they handle that too? Or is that something operationally that is typically the owner’s responsibility?
Scott: Yeah, that’s typically theirs. And so, again, we employ the property management companies. And most of what we do right now is really web-based. So we found that 70% of all of our rentals last year were initiated by a search that started on a smartphone. And most of the rest were somehow online, so whether it was on a laptop or on an iPad. Because, again, this is a commodity, and it’s a needs-based decision. So when you have trauma, you have transition in your life, you’re going to look online.
When you need storage, you’re going to find something that’s the closest to you. You’re going to call them, sometimes from the parking lot. And if they answer the phone, “Hey, here’s what I’ve got to store.” “Well, I think that might fit in a 10 by 10 or a 10 by 15. We’ve got two left. Why don’t you come down, take a look at it, and we’ve got a special going on right now.” So they come down, they take a look at it. And “I’ve got one left. Do you want it?” Move them in. And, you know, I don’t want to say it’s as simple as that, but that is as basic as it is. So it’s really important to have that web presence.
Once a year, public storage, even the biggest of all the self storage facilities, the REITs, they only advertise on TV once a year, and that’s in spring. And they advertise the “$1 moves you in” special, just for those folks that are transitioning from one season to the next, cleaning out the garages or moving, college moves and things of that nature. They advertise at that point, and we’ll piggy-back on that.
But it’s not like you send coupons out, like a door hanger or, like, even a Valpak in the mail for, like a haircut. Everybody’s going to need a haircut every three, four, five, six weeks. But you don’t need storage until you need storage, you know? It doesn’t really spark that much. So we just need to be in front of them when they need it, and that’s where we put our focus on, and that’s why it’s web-based.
Mike: Awesome, awesome. So Scott, just kind of final words here. For those that are currently single-family house investors like me, and they are hearing that they don’t have to deal with tenants and toilets and, “Wow, this sounds really interesting,” what’s your kind of elevator pitch on how to get started or how to learn more about this?
Scott: Well, if you want to dig in more to the information that we had, you can go to my site, which is selfstorageinvesting.com. And we have some pre-tutorial videos on there that kind of, they dig down a little bit deeper into the topics that we had mentioned. But if you’re really just kind of putting your toe in the water, look for existing facilities in the markets that you’re already looking in for houses. Look for distressed facilities. You won’t find as many of those, but everybody knows what distressed real estate looks for. I mean, that’s what we’re always searching for, correct? Houses, other buildings.
So if you could just train yourselves, for all of you that are in the neighborhoods looking for houses, as you leave or as you’re driving around the neighborhood and looking at the different businesses and what’s going on, look at the self storage facilities and walk inside. Pull the door, walk in, and talk to the person behind the counter. Most likely, it’s a manager, not the owner, but just ask them, “How’s business? We’re looking to start our own real estate business here. We’re buying a lot of houses, we’re rehabbing. And we may need some use for our contractors here at the site.” And just ask them.
And on the way out, “Oh, by the way, it seems like a good business, you know? Are you the owner? Have you ever considered selling it? Has the owner ever considered selling it?” So that’s one way of starting.
But if you have an itch to take it a step further, then yeah, look at the pieces of ground that have the old, weathered broker’s sign in the middle of it, or those old, broken down industrial buildings and warehouses in the dark Kmarts and grocery stores that are around. And same thing, find out who those owners are. Use the same searches that you’re using to find the owners for your houses, or your virtual assistants, have them track those down, and see who owns it and what it can be purchased for. Now, you wouldn’t know what to do with it until you had a little more training. But at the end of the day, that’s how you start to get into it is to understand what’s available [inaudible 00:42:04].
Mike: Yeah, I guess if you found out that they had plenty of units available, meaning they’ve got a fair bit of vacancy, that’s probably a big sign of distress for those folks, considering that most . . . you said something, your vacancy levels are not existent for a well-run one. So probably a first sign is, like, “Do you have any availability?” And they’re like, “Oh yeah. Half this place is available.”
Scott: Yeah. It could be, however, any manager behind the counter or owner worth their salt will never tell you that. They’ll say, “No, we only got two left. Do you want one?”
Mike: Oh yeah, that’s true.
Scott: So you may never know how much. They may have 50 available or 100, but yeah, we will never know that until we dig in a little bit further.
Mike: Yeah, that’s good. That’s good. Scott, well, thanks for joining us today. Definitely is [inaudible 00:42:49].
Scott: My pleasure, Mike.
Mike: Thanks for sharing this information. This is good stuff.
Scott: Absolutely. My pleasure.
Mike: Awesome. And everybody, we’ll add the link for self storage investing for Scott’s website down below. And I’ll add a link, too, to our FlipNerd lab where we have a master class, Scott shared some of the same information as today and went into a lot more detail. And we have some printouts and some handouts and stuff that you can use to take notes on and learn a little bit more. So we’ll add a link to that master class as well.
And everybody, thanks for joining us today. This is episode number 354 with our friend Scott Meyers. We’ll see you soon on another upcoming episode. Thanks so much, everybody. Have a great day.
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